On October 14, 2022, the Fifth Circuit issued its decision in Ultra Petroleum, granting favorable outcomes to “unimpaired” creditors that challenged the company’s plan of reorganization and argued for payment (i) of a ~$200 million make-whole and (ii) post-petition interest at the contractual rate, not the Federal Judgment Rate. At issue on appeal was the Chapter 11 plan proposed by the “massively solvent” debtors—Ultra Petroleum Corp. (HoldCo) and its affiliates, including subsidiary Ultra Resources, Inc.
The Second Circuit released a new decision this week in Sears regarding bankruptcy valuation methodologies and the entitlement of second lien debt holders to adequate protection. Among other interesting aspects of the ruling, the Second Circuit affirmed the Bankruptcy Court’s adoption of a "net orderly liquidation value" for the debtors’ inventory as of the petition date (rather than looking to the actual values obtained by the debtors during the case).
"Credito Real is attempting to bypass Mexican and US insolvency laws and deploy a corporate liquidation statute with almost no protections for creditors.
The saga of the first Ultra Petroleum Corp. chapter 11 cases appears to have finally come to an end. Numerous articles have been written on the tortured history of whether certain creditors of Ultra Petroleum are entitled to payment of their contractually mandated Make-Whole Amount and default rate of interest.
“…[B]ecause Congress has not clearly abrogated the solvent-debtor exception,” the U.S. Court of Appeals for the Fifth Circuit held that a reorganized solvent debtor had to “pay what it promised now that it is financially capable.” In re Ultra Petroleum Corp., 2022 WL 8025329, *1, (5th Cir. Oct. 14, 2022) (2-1). Moreover, “given [the debtor’s ] solvency, post-petition interest is to be calculated according to the agreed-upon … contractual default rate …,” not the “much lower Federal Judgment Rate . . .,” held the court. Id.
Since 1988, the ‘rule in West Mercia’ – so named after the West Mercia Safetywear v Dodd Court of Appeal case – has been the leading authority for when directors of financially stressed companies are subject to the so-called ‘creditor duty’, namely the duty to consider the interests of the company’s creditors.
On October 14, 2022, the U.S.
In previous alerts in this series, we have discussed how transformative DAOs can be for corporate formation and tax status. We have discussed how determining a DAO’s classification—whether a DAO is a legal entity and, if so, what type—is vital before any legal proceeding.
Chapter 11 Subchapter V cases are a relatively new animal in the bankruptcy world. Subchapter V was added to Chapter 11 of the Bankruptcy Code in February 2020 to provide an efficient and cost-effective alternative process for small businesses wishing to organize under Chapter 11.
Unlike regular Chapter 11 business reorganizations, Subchapter V provides for the appointment of a trustee. However, Subchapter V provides little detail about the role of these trustees. This article discusses how one court dealt with this ambiguity.
Background
Many years ago, back when mediation is a rarity in bankruptcy disputes, I asked an old-timer this question:
Why is the bankruptcy system a lagging adopter of mediation?”
A Surprising Answer
The old-timer gave this surprising answer:
“At the time of the Bankruptcy Code’s enactment, the bankruptcy judge was viewed as a mediator in the judge’s own court.”
The old-timer added this. When the Bankruptcy Code was enacted: